Why malls will remain an urban phenomenon only

By 2008, India had close to 600 malls. Mall development accounted for over 40% of the overall planned commercial development by 2009. Photo: Bloomberg

When Crossroads, India’s first shopping mall, opened in 1999, it heralded the beginning of modern retail in India. Now known as Sobo Central, the mall in Mumbai had McDonald’s as the anchor tenant and also housed Italian luxury menswear maker Ermenegildo Zegna’s first store in India.

In many ways, the mall is a microcosm of India’s larger retail industry. When it opened its doors, it looked promising as did India’s retail story. Zegna was the first luxury retailer to enter India in 1999. McDonald’s and Pizza Hut had launched operations a few years earlier in 1996. Shoppers Stop, India’s oldest department retail chain, was about eight-years-old. India’s retail pioneer Kishore Biyani was still to launch Big Bazaar.

The following decade saw luxury retailers like Louis Vuitton, Canali, Salvatore Ferragamo, Giorgio Armani and Burberry launch in India. The number of international fashion and accessories brands also rose steadily. Retailers were expanding rapidly and real estate builders were busy building malls. By 2008, India had close to 600 malls. Mall development accounted for over 40% of the overall planned commercial development by 2009.

The transformation of India’s changing retail landscape was captured by Biyani in his 2007 book—It Happened in India—where he talks about how he cashed in on the latent opportunities of a booming consumer market and ended up transforming the nature of retail in India. In the same year, Mukesh Ambani’s Reliance Industries Ltd ventured into retail and Flipkart opened shop. Biyani went on to buy Sobo Central by 2010. The mall earlier housed Biyani’s Central department store but then given the paucity of sales, he replaced it with Brand Factory, his discount retail chain. McDonald’s continues to survive. Zegna moved out of the mall by 2004-05. In the interim, it also exited its partnership with the Modi Group and took on board a silent partner for a few years. Then it once again changed strategy in 2010 to partner with Reliance.

Zegna was not the only brand tweaking business models in an attempt to navigate the complex Indian retail market. There was Versace, which entered India in 2002 through a distribution tie-up. In 2006 it took on a new franchise partner, Blues Clothing Co. Ltd, and parted ways with it six years later. The luxury brand returned to India in 2013 through a retailing and distributing tie up with Infinite Luxury Brands.

There are more than a dozen brands including Ed Hardy, Mango, Celio, Forever 21 and Tod’s that have revisited their strategies since they entered India the first time.

Even the promise of malls and large shopping centres transforming Indian retail has come undone. Close to 200 malls have shut in the last decade and an even larger number are struggling. There have been some new launches but the net number of total malls in 2017 stands reduced when compared to 2008, according to Bappaditya Basu, national director, retail and leisure advisory, JLL India. Moreover, the number of builders launching new shopping centre projects has also declined. Malls development now accounts for about a fourth of overall commercial activity, according to JLL data. Also, given the high costs associated with developing malls and the long gestation periods, the new malls are coming up in select cities such as Mumbai, Gurugram, Noida, Delhi, Bengaluru, Chennai, Pune and Hyderabad. “There is an increase in mall space in top 15-20 cities whereas in 14 others including large cities like Jaipur, Surat, Ahmedabad and Faridabad it has reduced,” says Basu.

To be sure, shopping centres are reflecting some of the challenges faced by big box retail. The initial years of hyper growth were mostly on the back of debt and given the high rentals and low sales, the high cost of doing business could not be justified, leading to a lot of retailers recalibrating their plans. The consolidation is still underway. In October, Shoppers Stop divested its stake in the duty free airport retail business and even sold its hypermarket chain HyperCity to Future Retail to reduce debt and focus on its core business. In 2012, Biyani sold the erstwhile Pantaloon Retail India Ltd’s apparel chain Pantaloons to Aditya Birla for similar reasons.

Retailers are now once again picking up steam after the course correction. While brick-and-mortar retail and large shopping centres have gone through their own learning curves, the newer retail and e-commerce companies like Reliance Retail and Flipkart have taken the lead in transforming modern retail, albeit with some hiccups.

By 2011, Flipkart had become India’s largest e-tailer. The company has taken a leaf out of Biyani’s book, following his strategy of expanding sales rapidly through acquisitions, mergers and sales and discounts. It had a 55% share of Indian e-commerce gross sales in March 2017, according to an October report by Morgan Stanley Asia Ltd.

Meanwhile, Reliance is betting on its Jio network to boost retail sales. There is a high probability in the future that more and more consumers who aspire to buy brands for the first time will do so on their mobile phones instead of visiting large shopping centres. Given the rising penetration of smart phones and increasing affordability of data plans and availability of broadband, this is already happening.

Modern retail is an important marker of urban growth and visiting large shopping centres an aspiration for many. However, the failure of malls to entice consumers to come to these temples of modern consumption is not a reflection of India’s modern retail story. What it signals, though, is a change in narrative.

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